How to choose a credit card
Find the best credit card for you
If you decide you need a credit card, it is important to choose
the best credit card to suit your situation.
Should I get a credit
Credit cards are a convenient way to pay for things, but
convenience can come at a cost. Research has shown that people
often spend more when they use a credit card than they
would if they were using cash.
Before you apply for a credit card, think carefully about why
you want it, and how you will pay for it.
Avoid getting a credit card if you are using it to pay off other
debts. The higher interest rate and other fees and charges may cost
you more in the long run. Consider a no or low interest loan or
talk to a financial counsellor if you are
struggling with your finances.
If you're worried about spending too much, a debit card might
suit you better.
What is the best credit card for
The kind of credit card you should get depends on how you want
to pay off your debt. Credit cards have different features to suit
different types of spenders.
Video: Choosing and using a credit card
compare credit cards video
Peter Kell from the Australian Securities and Investments
Commission talks about how you can choose the best credit card for
your circumstances, and gives tips on managing credit card
Low interest rate and low fee credit cards
Some credit cards have very high interest rates and fees which
can add up quickly. When looking at what card might suit you,
consider one that has a low interest rate or low fees.
Credit card interest free periods
If you always pay off your credit card in full each month, look
for one that offers interest-free days. This means you pay no
interest for a certain number of days after making a purchase (for
example, 55 days).
These cards may charge higher interest rates and annual fees,
but if you pay off your debt within the interest-free period,
you'll avoid paying interest altogether, so the higher annual fee
may be worth it.
No interest free period credit cards
If you know you won't be paying your debt in full straight away,
consider a card with no interest-free days. You'll usually pay
lower annual fees and less interest, either from the day of
purchase or the day your monthly statement is issued.
Case study: Ricky always pays off his credit card
Ricky landed his first job after
finishing uni and decided to get a credit card for those times when
he's caught without cash. After comparing a few credit cards, he
chose one that offers interest-free days and a low interest rate.
He vowed to pay off the balance within the interest-free period;
but, if he doesn't, the lower interest rate means he'll be charged
less interest than if he had one of the higher rate cards.
"I'm still paying off my HECS fees from uni so I don't want to
get into more debt."
Honeymoon credit card rates
Sometimes credit cards offer an introductory or 'honeymoon' interest rate. Check how much
the interest rate will rise at the end of the honeymoon
period, and what fees and charges come with the offer. A card with
higher fees might wipe out your honeymoon savings before long. The
same principle applies to offers of 'no fees for 12 months'.
How credit card balance transfers work
This is when you transfer your outstanding balance from one
credit card to another, often at a lower interest rate for a
certain time (for example, 4.9% for 6 months).
You can get the full benefit of this by paying off the balance
transfer amount within the balance transfer period. Just make sure
you check the interest rate that will apply once the balance
transfer period is over.
If you use your new card to buy something, your purchase will
usually attract the full interest rate of the new card (not the
special balance transfer rate). It is a good idea to check how
different credit card features may apply when you transfer your
balance to a new card. For example, you may be unable to take
advantage of any interest-free period on new purchases until the
balance transfer amount is paid in full.
After transferring your balance, close the old card. If you
don't, you may still have to pay fees, even if you no longer use
the card. Closing the account also reduces the temptation to spend
on both cards, which would add to your debt.
Payments you make on your new card could be applied to the
balance with the highest interest rate (for example, purchases you
made at the standard interest rate or cash advances at the cash
rate, whichever has a higher interest rate).
If you have not paid off the full balance transfer amount when
the balance transfer period ends, the amount remaining will be
charged at the standard interest rate or cash advance rate (which
may be higher).
Check the conditions of your card to see what rate applies and
find out how paying just a little bit more off your card each month
can save you interest.
Credit card calculator
Cashback, discounts and reward schemes
Here are some other features to consider when you are choosing a
- Credit cards with cashback: 'Cash back'
credit cards give you back some credit on your account. But the
benefits are quickly outweighed if the card has a higher than usual
interest rate. If you don't pay the whole balance off each month,
this kind of offer is not for you.
- Discounts on goods and services: Some
credit card providers offer discounts on goods and services
purchased through their own or partner organisations. This can be a
great way to save money on items you are likely to purchase, but
you should check whether these savings will be outweighed by any
fees or higher interest on the card.
- Credit card reward schemes: Some cards
offer points for every dollar you spend on the card. See reward schemes
for more information.
- Credit card travel insurance: Some credit
cards come with travel insurance. If this is something you think
you'd take advantage of then find out if your provider offers it.
Find out more about credit card travel insurance.
By law, credit providers must not charge more than 48% in
interest annually on credit cards (this includes all fixed fees).
Australian Deposit-taking Institutions (ADIs) such as banks,
building societies and credit unions are exempt from these fee
Credit card fees and
When you choose a credit card, check the fees and charges. These
can add a lot to the cost of your card and can include:
- annual account-keeping fees
- fees for reward programs
- fees for late payments
- fees for exceeding your credit limit (a card issuer must get
your consent before they can charge you for this)
- international transaction fees
- cash advance fees (which are charged in addition to interest on
Credit card purchases can attract a surcharge that some
retailers will pass on to you. You must be adequately informed of
any surcharge before you pay.
Where a surcharge is compulsory the retailer must clearly list
the surcharge alongside the price. Where the surcharge is optional
the retailer must clearly inform you of the surcharge and another
way you can pay that avoids the surcharge.
Ban on excessive surcharge fees
Businesses are banned from charging excessive payment
surcharge fees on debit, credit and prepaid card
transactions. This means a business cannot charge a customer more
than what it actually costs them to process a payment.
For more information see credit, debt and prepaid card surcharges
on the ACCC's website.
Some large stores issue their own cards, which operate like
regular credit cards but can only be used in that store, and
have much higher interest rates. Store cards can be an
expensive way to shop.
Before signing up for a store card, compare the interest rate
with other types of credit. The
benefits may not be worth paying a higher interest rate.
Be careful when you get a store card as part of an interest-free
deal. You might pay more in interest than a regular credit
How to compare credit
Here are some tools you can use to compare the interest rates,
fees, charges and features of credit cards to find the best one for
Key facts sheets
An easy way to compare cards is to use the 'key facts sheet'
available from credit card issuers. These contain
- Minimum repayment
- Interest rate that applies to purchases and
- Interest rate that applies to balance transfers and for
- Promotional interest rate (if any)
- Length of the interest-free period (if any)
- Annual and late payment fees (if any).
Credit card comparison websites
Comparison websites can be useful to compare the features and
fees of credit cards, but they do have some limitations. See our
article on using comparison
websites for more information.
It's worth shopping around to find the best
credit card for you. It might be easy to get a card with the
financial institution you normally use, but you could find a better
Last updated: 31 Jan 2019